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July 8 (Reuters) - Two former executives at Carter's Inc and a New York hedge fund manager received prison sentences on Tuesday for engaging in an insider trading conspiracy involving the children's clothing company's stock.

Eric Martin, a former vice president of investor relations at Carter's, was sentenced to two years in prison by a federal judge in Atlanta after pleading guilty in 2012 to conspiracy to commit securities fraud and wire fraud.

Richard Posey, a former vice president of operations at Carter's who prosecutors said provided illegal tips to Martin after Martin left the company, was sentenced by U.S. District Judge Richard Story to one year and three months in prison in light of his June 2013 guilty plea.

Mark Megalli, a former fund manager at Level Global Investors who prosecutors said was one of a number of investors at hedge funds who received tips from Martin, was sentenced to one year and one day in prison after pleading guilty in November.

The judge also ordered restitution be paid in the amounts of $950,000 by Martin, $750,000 by Posey, and $50,000 by Megalli.

The sentencings were the latest development in a broad investigation into what prosecutors called the first major criminal insider trading case to be brought in Atlanta.

"Illegal insider trading undermines confidence in the nation's stock markets," Atlanta U.S. Attorney Sally Quillian Yates said in a statement. "Today's sentences are a step towards restoring that confidence."

Lawyers for the three men either declined comment or did not respond to requests for comment.

Prosecutors said from 2005 to 2009, Martin, 44, disclosed details about Carter's forthcoming earnings and other developments to an unnamed former Wall Street analyst who cooperated in the probe.

They said after Martin left Carter's in 2009, he continued to receive inside information about its earnings from his friend Posey, 53, through July 2010.

Martin traded on the information and continued giving tips to the ex-analyst, and in September 2009 began providing inside information to investment firms that would hire him as a consultant, including Level Global, according to prosecutors.

Following the three men's pleas, prosecutors in May brought charges against a fourth man, Steven Slawson, co-founder of New Jersey-based Titan Capital Management, who they said also engaged in insider trading in Carter's. He has pleaded not guilty.

The SEC has separately brought civil charges against several people. Carter's has cooperated with the investigation.

The cases in U.S. District Court, Northern District of Georgia are U.S. v. Martin, No. 12-cr-364; U.S. v. Posey, No. 13-cr-239; and U.S. v. Megalli, No. 13-cr-442.